The workers’ comp reforms that took effect in 2013 are finally starting to bear fruit in the form of falling claims costs, and the result is what looks like a steep mid-year rate reduction.
The Workers’ Compensation Insurance Rating Bureau (WCIRB) is asking California’s insurance commissioner to reduce benchmark rates by more than 10% for policies incepting on or renewing on July 1. Insurers use these benchmark rates as guideposts for pricing their own policies.
When the Rating Bureau’s governing committee voted to file for the mid-year rate decrease, it noted that the decrease could have been even larger if it were not for increasing claims administration costs, which insurers say are due to them complying with laws and regulations governing claims.
But what is pushing rates down is lower-than-expected medical losses and claim severity (the average cost of claims) in the state.
Average medical costs for California workers’ comp claims fell more than 8.3% in 2013 and 2014 following the passage of state workers’ comp reforms in 2012, the WCIRB said. That’s compared with the 10% increase that the Rating Bureau had expected and priced into earlier rate filings.
Furthermore, it had also predicted that indemnity costs (payments made to workers who miss work due to their workplace injuries), increased 6.9% in 2013 and 2014, but that was less than the 12.3% that the Rating Bureau had predicted.
The Rating Bureau has been closely monitoring the cost of claims since the passage of Senate Bill 863 and it notes that its full effects may yet materialize.
“While it remains premature to adjust a number of a number of the prospective SB 863 estimates based on recently emerging post-SB 863 indications, the WCIRB will continue to actively monitor post-SB 863 cost levels and will adjust future pure premium rate indications as appropriate based on emerging experience,” the Rating Bureau wrote in its recommendation.
The takeaway
The Rating Bureau recommends that the average advisory pure premium rate be set at $2.46 per $100 of payroll as of July 1, compared with the $2.74 per $100 of payroll as of Jan. 1.
The bureau submitted its new rate filing to the state Insurance Department for approval on April 6.The state insurance commissioner will hold a hearing and still has to approve the rate filing, but odds are that he will approve it – or even approve a larger decrease than what the Rating Bureau is calling for.
It should be noted that while overall benchmark rates will fall at mid-year, pricing on individual policies will depend on each employer’s claims experience as well as the industry in which they operate.